Customs Procedures | A quick guide to Inward Processing to delay or pay less duty on goods you import to process or repair

Introduction

Inward processing enables imports of raw materials or semi-manufactured items to be processed for re-export within the UK, without the companies requiring to pay customs tax or VAT on the imported goods. There are two distinct ways; one permits suspension of the duty, while the other requires less or delayed payment.

Authorisation Requirement by HMRC

For businesses to be applying inward processing, they must obtain authorisation by the HMRC. Once you are authorised to employ inward processing to process or repair your goods, you may not have to pay Customs Duty or Import Value Added Tax (VAT) on items imported from outside the UK and subsequently re-exported from the UK.

If you retain your goods in the UK, you may pay less Customs Duty and import VAT if the duty rate on the processed items is less than the duty rate on the imported goods. You can also postpone paying excise duty on processed items, but you must pay the payment if you release the commodities into free circulation.

Inward processing authorisation: Application requirements

Following is the criteria of eligibility for inward processing authorisation: 

• You must be an established business in the UK.
• You must have an Economic Operator Registration and Identification (EORI) number.
• You must check if you will require an import license.
• You must check if you will require a guarantee submission to HMRC.

If you are not an established business in the United Kingdom, you must be fully authorised for HMRC to consider inward processing for non-commercial imports.

Steps to consider before applying for inward processing

Following are some of the most critical elements that you must consider before submitting your application for inward processing: 

1. Determine the correct commodity codes for your goods. You can use the Customs-Declarations commodity tool to assist you intuitively with this step. 
2. Determine the valuation method for your goods if you are going to release your products into free circulation. Please refer to our guide on customs valuation methods for further assistance. 
3. Determine the number of goods you will be importing over the period of your authorisation. It will be for up to: three years in the case of sensitive goods; or five years in the case of non-sensitive goods. Sensitive goods are those with the most significant economic influence on the United Kingdom. 
4. Determine the time duration you will require to process the goods. You should provide an accurate average for each process that you perform.
5. Determine the total number of items you will be producing. The products you want to manufacture are referred to as ‘processed products.’ Processed items are classified into two categories. Main processed products are the products you are applying to produce. Secondary processed products are by-products of the processing procedure; they are not production losses, waste, or scrap. You must determine the quantity of primary and secondary processed items that you will produce. You should accomplish it through the use of the ‘rate of yield’.
6. Determine the rate of yield for your goods. It is the number of processed commodities produced from the total number of goods entered for inward processing. For instance, if you only repair and return items, your yield rate will be 1:1. If you import 300 metres of cloth to manufacture 100 identical garments, the yield rate will be 3:1. If you have multiple processing tasks running, each will have its own rate of yield.
7. Determine what data you will need to keep and how you will be storing that data. 
8. Determine the entrance location for your inward processing. It may be a port of entry or transit location. 
9. Determine the point of discharge for your items from the inward processing. It is the location of the final delivery of the items. 
10. Determine the contact details (names, addresses) of other stakeholders involved in processing your goods; for example, they could be your sub-contractors.

Types of Inward Processing Authorisations

There are four different kinds of authorisations available for inward processing:

• Full authorisation 
• Retrospective authorisation
• Authorisation by declaration
• Authorisation covering Northern Ireland and the EU

Full authorisation

A full authorisation entitles you to the following:

• Eligibility to apply inward processing regularly.
• Apply simplified declarations to importing and exporting your products.
• Apply inward processing if you are importing non-commercial goods, and you are not an established UK business.

Retrospective authorisation

You may apply for authorisation after importing your goods, even if you have already shipped those items. HMRC will only authorise you if we have not previously granted you a retrospective authorisation in the preceding three years.

You’ll need to provide HMRC with records demonstrating the following:

• The goods are eligible.
• You have a business requirement.
• You adhered to the required inward processing procedure.

Additionally, you must provide a letter explaining why you require this type of authorisation, as well as a list of imports you wish to include in the retrospective period. HMRC may grant a retrospective authorisation for a period of up to 12 months before the date of application. When items are sensitive, the maximum period is three months.

Authorisation by declaration

You can apply for authorisation at the border in your customs declaration. You may do this up to three times per calendar year for each import of goods valued up to £500,000. However, you can NOT use authorisation by declaration if:

• You are employing simplified customs processes.
• You are requesting a retrospective or backdated authorisation.
• An anti-dumping duty applies to your goods.
• You are utilising economic codes 5, 6, 7, 8, or 12.
• You are importing and processing regulated products, works of art, excise goods, meat for aeroplane meals, catalytic agents, or other materials that aid in creating or processing export-ready commodities.

Authorisations covering Northern Ireland and the EU

If you work on your goods at many Northern Ireland and EU locations, you can obtain a single authorisation rather than one for each location.

Useful Resources

Apply to delay or pay less duty on goods you import to process or repair

Check if you’re established in the UK for customs

Get an EORI number

Check if you need a customs guarantee

Check if you need an import licence

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